Airbnb Defeats Regulation in San Francisco, Sharing Economy Here to Stay

The new and innovative sharing economy is creatively disrupting the old economy. Airbnb has risen victorious in the battle at San Francisco with “Prop F,” sending a clear message to governments and regulators to back off.

The “Airbnb Threat”

San Francisco headquarters a company that has been able to reach a valuation of $25 billion in just seven years. That number shows that Airbnb has taken the lodging industry by storm. However, it has also created a whirlwind on the side of regulation. On November 3, we saw that whirlwind take the shape of a regulatory initiative on the San Francisco ballot called Proposition F, yet it was defeated. Why?

What is Prop F?

Prop F, called for restrictions on short-term, private home rentals. Private homes would have only been allowed to rent out the home for a maximum of 75 days and would have had to pay hotel taxes to their local municipality. Homes would also have had to disclose revenue reports to the state every three months. These restrictions were called “The Airbnb Initiative” due to Airbnb being a privately owned accommodation rental website in which hosts can rent out their space to guests.

Interestingly, these restrictive measures would not only have been enforced by the city, anyone living within 100 feet of the perpetrator would have been able to throw their neighbors under the bus or sue. Fines would range from $250 to $1,000 per day of not complying with these restrictions.

It’s safe to say that Airbnb would have been greatly affected by these regulations, not only because it would hinder the revenue in San Francisco, but because these types of regulatory measures could have sprung up in other cities as well.

Why Do People Care About What Other People Do in Their Own Homes?

We shouldn’t care, but we do. Caring about what other people do has been hard-wired into our brains, especially when they do things that may seem more profitable or more successful than you. According to Nikki Sullivan, a doctoral candidate from the California Institute of Technology studying Neuroeconomics, “people love to punish transactions that they see as unfair.”

This is exactly what we see when companies like Uber and Airbnb come in and disrupt the market share of established cartels, err—businesses, like taxis and hotels. The local governments also get frustrated when they see homes turning into moneymaking machines for the hosts and distorting traditional tax-revenue streams.

However, in this particular case, supporters of Prop F were not only concerned about the taxes and codes that they claim Airbnb hosts were avoiding. They also claimed that short-term rentals were distorting the prices of long-term rentals in the San Francisco area. Share Better SF, the coalition behind this ballot initiative claimed, “San Francisco is facing its worst housing crisis in more than a century, with skyrocketing rents and home prices.”

The supporters claim that this initiative would have eased the housing market by bringing back the long-term rentals and homebuyers, instead of properties being bought by people just wanting to make a profit.

Millennials Run San Francisco and the New Economy

San Francisco has the most Airbnb listings per capita in the country, so it has affected all types of markets. Airbnb has not only affected the hotel industry in San Francisco, but it has also affected the housing industry, restaurant industry, and virtually anything to do with travel and lodging.

San Francisco is a destination spot for successful millennials in lucrative industries as it has top-notch firms, excellent restaurants, and a vibrant culture. The demand to visit this place is high. Unfortunately, the supporters of this initiative fail to mention how the housing market has been affected by the stringent rent controls and land restrictions in the city. These restrictions combined with high demand has created a shortage in the market, opening the door for Airbnb to help alleviate the problem.

The most important thing to remember is the fact that millennials run San Fran. This generation is much more amenable to the sharing economy. Although Airbnb invested a ton of cheddar into the campaign against Prop F, Gen Y is cool with Airbnb. This city has a population dense with an entrepreneurial, creative, and hip vibe. It only makes sense that this initiative was defeated.

As cities decide how they want to deal with companies operating in the sharing economy, they need to get that blocking out industry disrupters is going to be very difficult. Not only have people become more trusting, in general, but Gen Y is the largest generation in the population, and we like the sharing economy.

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